Stock option control and exercise system

ABSTRACT

A system and method for managing a plurality of stock option accounts each for a plurality of participants. The system invokes a particular option plan defined in the system that governs the transaction choices available to each participant. The governing option plans are defined by the sponsoring company in terms of grant, vest and expiration date for the option contracts, and are defined in the system via a database of option holding information for each participant and an axiomatic rule system defining the criteria under which a given participant can exercise given options under the particular plan. The system implements the plans for multiple client companies providing several distinct modes for option exercise by the participant. The system preferably also allows for disbursement of proceeds in a currency different than that in which the underlying security for the option is traded, real time execution of the option transaction, and/or simulating the outcomes of different manners in which the participant may exercise vested options and the resulting economic outcome (disbursement, taxes, transaction fees).

This application is a continuation of co-pending application Ser. No.08/935,709, filed Sep. 23, 1997, which is a continuation-in-part ofapplication Ser. No. 08/487,902, filed Jun. 7, 1995, now U.S. Pat. No.5,671,363, and application Ser. No. 07/938,939, filed Sep. 1, 1992, nowabandoned (the disclosures of which are incorporated herein byreference).

BACKGROUND OF THE INVENTION

The present invention generally relates to computer controlled accountmanagement systems for stock option management, and more particularly toa data processor for implementing a management control system fortracking and processing a plurality of segmented stock option accountscorresponding to individual participants in a company sponsered stockownership plan.

For many years, publicly owned companies have provided payment to upperlevel executives in the form of options to purchase shares of stock inthe company for whom they were employed at discounts from the prevailingmarket price. These stock option are attractive for many reasons. Forone, the option is a form of deferred payment that provides certain taxbenefits and allows the individual to control the times during which theincome is derived. In addition, the opportunity to buy stock in thecompany is an additional incentive to the option recipient to work toincrease the value of the company, and so also the value of the stockoptions.

Early forms of option plans were limited to scope and available only toa handful of key executives. Indeed, the use of options as a form ofcompensation was routinely limited to the officers of a corporation,while the remaining employees were either granted stock pursuant topension plans or, more often than not, unable to participate in companysponsored ownership. As alternative forms of compensation grew inpopularity, companies were increasingly interested in providing paymentto select employees in untraditional forms. Concepts such as flex time,position sharing, benefit tailoring, and others became the terminologyof personnel departments for mechanisms to address staffing needs in acost efficient manner.

More recently, companies are examining the possible broader use of stockoption-based compensation to cover greater numbers of employees in orderto stretch out staffing dollars and to provide remuneration to employeesin a form particularly desired by many staff members. Although greetedwith substantial enthusiasm, the problems in implementing a companysponsored stock option plan are daunting. As the number of participantsgrows, tracking salient data becomes increasingly complex. For the mostpart, companies are not equipped to handle the transactional attributesof stock option processing on a scale above a handful of participants.Each of the options (or each block of options) for each grant to eachparticipant in the plan must be individually tracked for properdelineation of such parameters as the granting, vesting, exercise, andexpiration dates, and the particular strike price for which the optionright was granted. Also, the practical exercise of an option requiresthe use of a brokerage house and an established exchange for trading andconsummating the options and the underlying security in accordance withthe plan attributes.

The complexities of option account processing increasedisproportionately when more than one company is involved; this isespecially true for multinational companies working within the bordersof multiple countries—each with its own set of legal requirements onstock ownership and tax consequences for resident employees. Heretofore,there has been an absence of processing capabilities available toaddress the management of a multi-country, multi-company stock optionaccount compensation plan for a plurality of individual accounts. Inaddition, stock option plans for multinational corporations, or formultinational employees (i.e., employees who work for one or morecompanies in two or more countries), have the added practical problem ofexercising options where the underlying security and the funds are indifferent currencies.

Besides currency differences, from the participant's point of view therecan be significant uncertainties in how to exercise options becauseoptions may be granted in qualified (i.e., qualifying for preferentialtax treatment) or non-qualified plans, and the option may be exercisedso that the participant receives the underlying security, a cashdisbursement representing essentially (less taxes, commissions, andfees) the difference between the strike price and the then presentmarket price of the underlying security, or some combination thereof. Itwould be beneficial to the participant if she could simulate variousfinancial outcomes (e.g., including estimated taxes, fees, or cashdisbursements, or combinations thereof) to arrive at what is best forthe participants financial needs precipitating exercise of the options.

OBJECTS AND SUMMARY OF THE INVENTION

It is an object of the present invention to provide a data processingsystem for managing a plurality of individual accounts directed to theholding and transacting of options for the purchase of securities inaccordance with pre-established plan criteria.

It is another object of the present invention to provide a dataprocessing apparatus for managing the implementation of one or morecompany stock option plans on a continuous basis.

A further object of the present invention to provide a system forprocessing plan constraints in a manner to provide responsivetransactions in accordance with plan dictates and select inputs fromplan participants.

An additional object of the present invention to provide a cashlesstransaction for the exercise of vested options in accordance with planterms, through the use of a linked brokerage account for the planparticipants.

Still further objects of this invention include providing such apparatusand systems that can function across currency differences, provideoption execution in real time, allow the participant to simulatedifferent exercise scenarios to define the desired parameters for theexecution of the options, or a combination thereof.

The above and other objects of the present invention are realized in adata processing system including controlling stored programming directedto the managing and tracking of a plurally of individual accounts,current stock pricing, individual biographic data, company option plansand current withholding and other tax requirements. For each participantin a given plan, the system tracks the number of options to purchasestock that have been granted, the grant date, the number vested and vestdate, and the number expired and date of expiration. At participantdetermined dates, the system implements a participant requested exerciseof select options in accordance with the governing plan, e.g., optionprice, withholding percent, etc.

In accordance with the varying attributes of the present invention, thesystem uses a corresponding brokerage account held in the participant'sname to implement the actual trades of stock necessary for the optionexercise, with the market sale price on the exchange used to pay theplan sponsor (company) the option price, and remaining proceeds ascompensation to the participant.

The foregoing features of the present invention may better appreciatedfrom the following detailed description of a specific illustrativeembodiment thereof, presented in conjunction with the followingdrawings:

DESCRIPTION OF THE FIGURES

FIG. 1 provides a functional block diagram of the operative activitiesencompassed by the present invention;

FIG. 2 provides a logic flowchart of the participant attribute module ofthe present invention;

FIG. 3 provides a logic flowchart of the daily transaction processingimplemented by the present invention;

FIG. 4 depicts a logic flowchart of the option exercise module of thepresent invention; and

FIG. 5 provides a flowchart for the cumulative trading of shares inaccordance with the instructions from participants on a plan or clientbasis.

FIG. 6 depicts a flowchart showing a sequence of steps by which theparticipant can exercise options in real time and other actions taken bythe present system.

DETAILED DESCRIPTION OF SPECIFIC EMBODIMENTS

First briefly in overview, the present invention is directed to managingthe operations associated with the broad scale implementation ofindividual stock option accounts for different companies and inaccordance with distinct plans. The implementation is governed by anintegrated control program implementing commands in response to programlogic and current environmental inputs. The system maintains in memoryrecords of participating individuals having present or future rights toexercise options of select stock, as well as a plurality of distinctoption plans that dictate the implementation of the plan participants'rights in exercising the options granted to the participants. Processingis both time-driven and event-driven; for example, periodic updates tothe participant's records occur at regular (preferably at least daily)intervals. In addition, select inputs preferably trigger systemprocessing, e.g., option exercise request or target price acquisition.

A sophisticated data processing system is used for this implementation,which preferably includes one or more microprocessor-based centralprocessor units (cpu) interconnected with multiple I/O (input/output)controllers, segmented memory in both semiconductor and magnetic diskform (i.e., immediate memory and permanent storage), communication portsfor distributed processing and real time input communication for, e.g.,incoming stock quotes (i.e., real time quotation of the option'sunderlying security price). The controlling program can be written invarious commercially well-known programming languages (e.g., Cobol, “C”,Pascal, etc.), as long as the resulting executable version is compilablein a manner compatible with hardware selected for the central processorand any peripheral work stations. For example, excellent results can beexpected implementing this invention using Cobol II programmed andrunning on an IBM 3090 (Sierra) system platform.

With the foregoing overview in mind, attention is directed to FIG. 1which provides a block diagram of the processing relationship betweenthe various institutions involved in the operation of the presentinvention. More particularly, the system proprietor operates the systemat a centralized location, block 10 where the central processinghardware is maintained. As stated above, the invention is directed to aplurality of separate accounts involving at a minimum segregated fileson the participant and participant's brokerage account. This will ofcourse require database 20 for maintenance of past and updated accountfiles.

Continuing with FIG. 1, the individual blocks are interconnected withlines indicating channels of communication. For example, eachparticipant 30 has access to a corresponding account record via systemmanagement and may use this channel for entering option exercise orders,submit cash for execution, or request records for tax purposes. Thesystem proprietor is operating the system for the benefit of one or moreseparate client companies, block 40, each with a diverse set ofprocessing requirements for their respective group of employees. In thisregard, the system incorporates communication channels for the client40, the participants 30, and the system manager 10.

Actual transactions made in accordance with the dictates of the presentinvention are processed practically through one or more transfer agents50, typically a bank or other trustee formed for the transactionsinvolved. The transfer agent releases newly issued or treasury shares ofstock in the client company, which are passed to the system manager (orassociated broker) either directly or through a depository trust company(DTC), block 55. Finally, the system is linked via per se well-knowncommunications systems to one or more exchanges, block 60, for executionof the transactions of shares in accordance with plan dictates, clientconstraints, participant requests, and brokerage account limitations.

To understand the logic commands governing the implementation of thepresent inventive system, a brief description of the salient terms maybe helpful and thus provided in Table 1 below:

TABLE I

1. Option(s). Options are granted to one or more eligible employees at astrike price set on the grant date. The options have a limited lifetime,and expire at the end of their term if not exercised. An option is aright to a purchase a set number of shares of the underlying security atthe strike price.

2. Vesting Period. Options granted to an employee are not exercisableuntil the completion of a vesting period, typically at least one yearafter grant date. Sponsors may specify their own vesting schedule.Accordingly, each participant may have both vested and non-vestedoptions in her account.

3. Exercise. An option is typically exercised by paying the purchaseprice for up to the number of shares granted in the option at the strikeprice, so the person exercising the option then owns the underlyingsecurity. Option exercise methods for employee stock option planstypically include stock swap, traditional participant cash payments fromprivate resources, as well as the effectively immediate sale ofunderlying security after exercise to pay for the grant price (alsoknown as the “cashless” exercise method because the participant need notactually buy and then sell the stock; the participant effectivelyreceives what would have been the disbursement for such a transaction).For global operations, the system must implement country specificrestrictions that may inhibit cash or cashless transactions by law.

4. Income. Upon exercise, participants realize cash disbursements, suchas the spread between the option grant price and the exercise price(fair market value on exercise date), as taxable income. Plan sponsorstypically deduct this spread as a compensation expense. The income andexpense realized may be governed otherwise by IRS, SEC, and/or theparticular plan regulations. Participants can also defer income byexercising the option and receiving the stock.

5. Withholding Taxes. Taxes on each participant's exercise income arewithheld at rates specified by the plan sponsor. Funds to paywithholding taxes are raised through the sale of a number of the sharesobtained through the exercise, share withholding, cash on deposit, orswapping of shares of stock already owned, with the resulting fundsforwarded to the plan sponsor for payment to taxing authorities.

6. Brokerage Services. Each participant is required to open a brokerageaccount to facilitate exercises. The net number of shares obtainedthrough the exercise is deposited into the account. Participant may holdthe shares or sell them at their convenience.

7. Exercise Costs. Each exercise entails a variety of possible exercisecosts, against which some percentage of the shares obtained on exerciseare sold. These costs can include:

Option price. Participants owe their employer, which issues the stockthey receive on exercise, the option price times the number of optionsbeing exercised. (e.g., 100 options with a grant price of $37.50 equalan option price of $3,750.00).

Withholding Taxes. As described above, the spread on an option istaxable as ordinary income. Some option awards and internationalparticipants, however, may not be subject to taxation on this income.

Commissions and Fees. The exercise of stock option and sale of shares tocover exercise costs entail transaction fees. Plan sponsors may chooseto pay these commissions and fees on behalf of their stock option planparticipants, or specify that participants pay for these through a cashor stock deposit or through the sale of shares obtained from theexercise.

Now turning to FIG. 2, the set up module is presented in flowchartdelineating the entry of set up data for a new or updatedclient/participant account file and associate operations. Moreparticularly, logic begins at block 100 and branches to the databasemanager module. This manager system permits access to the database ofexisting accounts, clients and participant records for retrieval andupdate purposes. As the population of clients/participants grow, thedatabase manager will be automatically invoked via the link to systemmanagement for update processing.

For the purposes of the preset discussion, the database manager is usedto add new records and files for new client and/or participants andupdate existing files via test 120. A positive response to test 120(indicating a new client entry, i.e., a new company interested instarting a plan for its participating employees that permit the grantingand transacting of stock options on an ongoing managed basis) brancheslogic to block 130 wherein a designated addressable file location isallocated in the database for client profile parameters; theseparameters as ascertained by the system manager are then entered atblock 140.

The exemplified system described herein includes several prepackagedPlans for delineating the rights and obligations of the client to theparticipants regarding option processing. The Plans will be available tothe new client as set forth in test 150, where a negative responseinvokes the selection process from the received client criteria. Basedthereon, the selected Plan is entered into the database for governingfuture transactions for the new client. Alternatively, the client maycustomize a stock option Plan in accordance with the client's particularneeds and interests. This is done via a positive response to test 150and the entry of custom Plan parameters at block 170. Processing thencontinues to the next client (new) test 180 or to continue block 190.

Continuing with FIG. 2, assuming a negative response to test 120, logicbranches to test 200 which identifies whether the participant is new orexisting within the database for that client. A positive response totest 200 (new participant) continues to block 210 for open/entry of anew record corresponding to that participant. The participant is thenlogically concatenated to the proper client, block 220 thus inheritingall the client delineated option Plan features previously entered forthat client. Thereafter, the system seeks the remaining definingparameters for that participant for storage within the addressabledatabase record, block 230. This continues for the next participantentry in que, test 280.

If the participant is already in the system (“no” to test 200), logicbranches to test 240 to determine if a status change has been made tothe participant's file. A status change is directed to the parametersstored for that participant and can include biographic, demographic orpayment information such as a promotion, vesting of select options,termination, expiration of options, exercising options, or otherchanges. If a positive response is received, the salient records areaccessed, block 250, and the appropriate changes entered into therecords, block 260.

In the foregoing logic structure, the client and participant aresystem-defined through a specified option Plan and in fact this Plan maybe modulated and incremented in accordance with the client so that aplurality of differing Plans are implemented by the system (e.g.,Plan(I), wherein I is an indexing variable for the differing clientsusing the option management system). In this context, the Plan canincorporate the profile of information shown in Table II in theprocessing of option accounts for the various participants. Each planmanaged by the system preferably includes (i) a set of parameters forsuch purposes as identifying and/or categorizing the necessaryparticulars for each participant and their option(s), (ii) a databasecontaining each of these parameters, and (iii) an axiomatic system atleast in part defining the plan criteria for the exercise of the optionsby a plan participant.

TABLE II Description Resp. Size PLAN LEVEL RULES Plan name Mrking 50Chars Plan source code Oper 9 Chars Plan stock cusip Oper 8 Chars Planstock description Oper 20 Chars VRS Mrking Yes or No VRS phone numberOper 999-999-9999 Annual or quarterly statements Mrking Annl or QtrlyCustomer letter short name 1 Systems 20 Chars Customer letter short name2 Systems 20 Chars Customer letter phone number Systems 999-999-9999Account Assignment Oper Yes or No Plan active date Systems CC/YY/MM/DDIncentive Compensation Mrking Yes or No Fractional grants Mrking Yes orNo Allow zero grants Mrking Yes or No Payroll data required for exerciseMrking Yes or No Maximum year to date exercises Mrking 999 Minimumexercise amount Mrking 9,999,999.9999 Maximum exercise amount Mrking9,999,999.9999 Target price exercise duration (d) Mrking 999 Exerciseblackout start date Mrking CC/YY/MM/DD Exercise blackout end date MrkingCC/YY/MM/DD Limit price % Mrking 9.9999 1st sale inflation % Mrking9.9999 1st sale minimum commission Mrking 999.99 1st sale commission %Mrking 9.9999 2nd sale inflation % Mrking 9.9999 2nd sale minimumcommission Mrking 999.99 2nd sale commission % Mrking 9.9999 Repeatfollowing for each valid exercise type for the plan (max. 30 types)Exercise type Mrking 6 Chars Exercise code Systems 1 Char Exercisedescription Mrking 30 Chars COUNTRY RULES Country number Oper 999Country Name Mktg 30 Chars Allow VRS exercises? Mktg Yes or No Newaccount form required? Mktg/Legal Yes or No Force share deliveryOper/Legal Yes or No Special user authority needed Oper Yes or NoSpecial userid's Oper 8 Chars Repeat following for each valid exerciseallowed (max. 30 types) Valid exercise type Mrking 6 Chars Validexercise code Systems 1 Char Valid exercise description Mrking 30 CharsGRANT RULES Grant date Mrking CC/YY/MM/DD Grant price Mrking99,999.99999 Grant expiration date Mrking CC/YY/MM/DD Maximum year todate exercises Mrking 999 Minimum vesting amount Mrking 9,999,999.9999Vested outstanding cusip Oper 8 Chars Vested outstanding account Oper 9Chars Vested lapsed cusip Oper 8 Chars Vested lapsed account Oper 9Chars Unvested outstanding cusip Oper 8 Chars Unvested outstandingaccount Oper 9 Chars Unvested lapsed cusip Oper 8 Chars Unvested lapsedaccount Oper 9 Chars Exercise cusip Oper 8 Chars Exercise account Oper 9Chars EMPLOYEE STATUS RULES Status code Mrking 1 Char Status descriptionMrking 30 Chars Exercise cutoff amount Mrking 9999 Exercise cutoff typeMrking Years/Months/Days VESTING RULES Grant date Mrking CC/YY/MM/DDStatus code Mrking 1 Char Vesting rate Mrking 9.9999 Vesting calculationtype Mrking Truncate or Round Special vesting check Systems Yes or No100% vesting date Systems CC/YY/MM/DD Repeat following for each eventdate (up to 25 event dates) Event vesting date Mrking CC/YY/MM/DD Eventvesting rate Mrking 9.9999

In the above Plan profile, the column “Resp.” indicates the specifyingdivision of the system proprietor responsible for the variable data,e.g., “marketing”. VRS represents a Voice Response System that allowsdirect phone link to the system options for the participant viatouch-tone entry, preferably in multiple languages. The column “Size”indicates an embodiment of the record format size and/or format fordatabase management.

Additional plan level rules (or other rules) can be implemented asrequired by a particular system or which the administrator requires ordesires. For example, other preferred plan level rules include the typeof option grant, an option grant suffix, whether real-time trading(described below) is allowed by the plan for the participant, and theparticular currency type (e.g., foreign currency transactions, asdescribed below), the language in which the VRS responds as a defaultwhen the participant phones, termination letters, and option expirationletters. The option grant suffix is useful when, such as preferredherein, the system recognizes options by their grant date becausedifferent types of options, or options having different conditions forexercise, may be granted to the participant on the same date; hence, thesuffix can permit the system to distinguish between different types ofoptions granted to the same participant on the same date. The parametersfor termination letters and option expiration letters are equivalent totoggles prompting whether the system should issue letters to theparticipant as notification, respectively, that participation in theplan has been terminated (and, for example, how the options can beexercises in the future) and that particular option(s) granted are dueto and/or have expired. Similarly, the grant rules can includeparameters for the option grant type and the option grant suffix.

With the above Plan structure for illustration, attention is nowdirected to FIG. 3 depicting the logic path for the inventive systemassociated with periodic (daily) account processing. Beginning at block400, logic uploads the system module at block 410. The system modulegoverns the processing of accounts on the periodic or input drivenbasis. In this context, input driven processing is exemplified by atransaction request received by telephone from a participant. Periodicprocessing is time based (e.g., daily) and functions to control timebased processing of accounts—for example the removal of vested optionsafter the expiration of a Plan delineated termination period for theoption. Other time based processing will include the comparison ofcurrent stock price on an exchange with a specified target price in aparticipant's file with a contingent transaction automatically executedif the price-quote comparison is satisfied. In this context, the currentstock price corresponds to some recently completed and fixedtransaction, such as “end of day” pricing. Other market pricingtechniques may be employed.

Continuing in FIG. 3, at blocks 420 and 430 the system accesses theparticipant files in sequence for processing in accordance with the Plandictates for the entered Date. Test 440 determines whether theparticipant/plan files delineate a grant date for the option account. Ifso(“yes”), logic proceeds to blocks 450-490 wherein the Plan is accessedand used to quantify and confirm the option grant, calculate vest andoptionally option price for the newly granted options and update theparticipant files in accordance therewith.

At test 500, the system determines if the date of processing is avesting date for that Ith participant; if so, logic proceeds to blocks510-540 for processing the participant records in accordance with thePlan and specifically updating the options (vested) available fortransacting by the participant. The records for the Ith participant areupdated with the new information replacing the existing files in thedatabase.

Plan constraints often include time periods for exercising vestedoptions. Therefore, after the passage of time, unexercised vestedoptions will expire. The system module determines this at test 550 foreach participant (unless the Plan for that participant has no time basedoption expiration function). A positive response to test 550 branches toblocks 560-590 wherein the Plan is accessed and the associated expiredoptions removed from the participant's account.

As discussed above, exercise of options by the participant may beaccomplished by both direct request or by a time function; this lattercourse involves the setting of a target price for the shares that isabove the current market price, and the setting of transaction timeperiod in terms of start time(or date) and span (duration of requestedprice delineated transactions). Once evoked, the system mustcontinuously (implemented in incremental updates) receive market datafor direct comparison to the target price, and automatically execute therequested transaction upon satisfaction of the target-market pricecomparison.

The foregoing is accomplished as follows. At test 600, the systemdetermines if a target price exercise order has been entered for theuser and if so the target price, TP(I) and the duration DD(I) for theIth participant, block 610. The system then accesses the current quotefor the specified security, designed as MAR_P(D), at block 620 andcompares this price data at test 630. If the comparison criteria is met,logic proceeds to block 640 where the system links to an exchange forautomatic execution of the options exercised. The participant's accountis then updated at block 650. If test 630 is not satisfied, notransaction is authorized for this period and the participant's file isupdated accordingly at block 660. The system then increments to the nextparticipant (I+1) for further processing at block 670.

In addition to the entry of time-driven exercise orders, the systempreferably can processes exercise orders on an order receipt basis,i.e., order-driven processing at opposed to event-driven processing. Inthis mode of operation, for example, the system provides two forms ofexecution to the participant with vested options, funded and cashless.The funded transaction is the traditional mechanism described above forprocessing options and involves the receipt from the option holder ofthe share price defined in the option account which is then coupled withadditional funds from the option grantor for purchasing the security onthe exchange at the strike price of the option. The security is thenprovided to the plan participant for disposition.

An alternate approach, the cashless approach, does not require anycontribution by the participant and is based on the normally commonoccurrence of an option price that is significantly below the currentmarket price of the security. A cashless transaction involves thedisposal of shares at the market price (either treasury shares orpreviously purchased shares) with the proceeds divided between theclient (option grantor, receiving the option price for the sold shares)and the participant (who receives the market price minus option price(i.e., MAR_P−OPT_P) multiplied by the number of shares). Thistransaction is considered “cashless” because no initial contribution isrequired by the plan participant option holder.

A third form of option exercise involves the use of stock as directlycontributed by the participant to fund the exercise of the options. Thisstock can be sold at open market with the proceeds used to fund theexecution of the option. However, more usually, the participant “swaps”an amount of stock sufficient to exercise the options, and receives theshares represented by the options minus the shares she used for theexercise. For example if the participant has 1000 options (i.e., topurchase 1000 shares) for which the funds required for exercise areequal to the present market value of 100 shares of the same stockpresently owned by the participant, the participant will receive 900shares in a “stock swap” exercise of the options.

The foregoing transactions are accomplished by the present system inaccordance with FIG. 4. Beginning with start block 700, logic proceedsto block 710 and input of the current queued request for the Ithparticipant. At test 720, the system first confirms that the participantorder is proper, i.e., the current records reflect possession of vestedoptions to support the exercise request for that participant; otherconfirmation data may be accessed for foreign security laws onownership, etc. as may be needed.

Assuming a negative response to test 720, logic continues to test 740wherein the system determines the form of the transaction, i.e.,cashless or funded. If the funded request is selected by theparticipant, logic branches to test 750 to confirm receipt of thenecessary funds to support the purchase. As stated earlier, alltransactions are based on the use of a concurrent brokerage account andthe requisite funds may be established by one of several mechanisms suchas margin on existing shares etc. If the transaction as requested isunfunded, (“no” to test 750) the system stops execution of the order andprepares a report, block 760.

If the transaction is fully funded, the system enters the participantselected target price for the transaction, TP(I) and recalls the currentmarket price, MAR_P(D) at blocks 780 and 790 respectively. Test 800compares the prices for the security with automatic execution of thetransaction instituted upon satisfaction of the vest via blocks 810-830.The target price may be and often is set at the current market price bythe participant to insure execution of the option (i.e., test 800 alwayssatisfied).

Continuing with FIG. 4 and assuming selection of the cashless exercise,processing proceeds to block 840 for the entry of the target price bythe participant. Again the system accesses the current market price forthat security and compares this value to the selected target price andadditionally the stored option price for that participant. This lattertest condition is required as the TP(I) must also support the payment ofthe option price and the accrued transaction fees pursuant to thedesignated cashless transaction. Satisfaction of this bifurcatedconditional permits automated order execution via the brokerage accountfor that participant, blocks 870 and 880. Logic then proceeds to thenext order in the queue.

Although the entry of option exercise instructions are made on anindividual participant basis, the actual implementation of thesetransactions is done on a client/security basis, i.e., transactions fora given security are accumulated so that the actual trade order thatreached the exchange comprises many individual orders combined. Themethod of accumulation is not critical and may proceed by either a settime period or by volume of transactions is given securities.

This accumulation process is delineated in FIG. 5. At select intervals,the system begins the transaction procedure via start block 1000,confirming the transaction period at test 1010. A “yes” to test 1010starts the transaction entry process; each plan is accessed and eachparticipant incremented by indexing variables “J” and “I” respectively,blocks 1020-1040. At block 1050, the system accesses the transactionrequest REQ(I) for the Ith participant. If this REQ is confirmed at test1060 (meets plan constraints and target price considerations), thesystem accumulates the optioned shares into the total for that security,block 1070, wherein TSO(J) represents the total stock options for theJth security and ISO represents the individual stock options REQ by theIth participant. Logic continues for each Ith participant and Jth Planwith the retention of TSO(J) for all J's in the system, blocks1080-1100. These collected and confirmed orders are then sent to theexchange for execution, block 1110.

Continuing with FIG. 5, test 1120 confirms that the order as entered onthe exchange was executed per instructions. A positive response to test1120 is followed by system file update with the new information, block1130. If the order cannot be confirmed, the system determines whetherthe price limit failure occurred, test 1160. A price limit prevents arapidly shifting market from causing a negative cash transaction byassuring that the market price received for the security is sufficientto cover the option price plus whatever incidentals may accrue. If aprice limit triggered an aborted trade, a report is generated, block1180; if the trade failed for some other reason (e.g., trading stoppedfor that security on the exchange) the system contacts the broker tocomplete the report, block 1170. This ends the processing until the nextperiod or volume limit is reached, block 1150.

With the proliferation of multinational corporations and employees whomay likely be working in various countries during their tenure with oneor more international companies, the invention also allows for themanagement of stock option plans where the money used for the exercisetransaction, and/or for the disbursement of proceeds (e.g., a “cashless”execution of the option), are in different currencies. In such a system,the participant request (i) the form of option exercise desired (e.g.,cashless, regular sale, or cash balance disbursement), (ii) that theproceeds are to be distributed in a particular currency eligible for theplan, and (iii) the desired method of disbursement (e.g., cash or wiretransfer). The exercise of the option proceeds as described above withthe additional input that the broker (or participant, as describedbelow) enters to indicate that a “foreign” currency transaction isrequested, and how the funds are to be disbursed. Preferably, wiretransfer instructions and information must be provided by the planparticipant prior to execution of this foreign currency transaction;otherwise, measures can be implemented to allow the participant tosubmit wire transfer authorization and for the broker (or customerservice representative) to enter and confirm that information during theparticipant's online modem or telephone session. The option exercisethen proceeds as described above with a disbursement monetary valuegenerated that is due to the participant as well as the type of currencywith which the option was exercised and the type of currency that theparticipant desires to be disbursed. If the two currency types aredifferent, the system queries a database (present in the system orremote accessible online via a service provider) for the exchange ratebetween the two currencies, and generates a value of the disbursement inthe currency type requested by the customer. Preferably, the system alsogenerates a transaction fee for the currency exchange based on astandard rate or such other terms as the plan manager may require or mayhave agreed with the company whose options are being managed. The systemalso preferably generates output reports for the manager and/or theparticipant and/or the company regarding wire transfers and/or currencyrate reports (including any applicable exchange transaction fee(s)).

In another embodiment of this invention, it is preferably contemplatedthat a participant engages the system and exercises vested optionswithout directly contacting a broker. As such, the participant canaccess the system on a bulletin board directly via modem, a hypertextpage (preferably via secure server protocol) on the web portion of theinternet, or a menu system via touch-tone telephone as mentioned above.The participant would be required to enter account information and oneor more passwords (e.g., a PIN, a personal identification number).Thereafter, the participant enters, for example, information indicativeof the particular options to be exercised and, optionally, trading,currency, and/or proceed distribution instructions. For example, theparticipant can direct the system to exercise specified options only ifthe price of the underlying security were not less than a given price.Likewise, the participant could direct that the proceeds by distributedin a particular currency, as described above; and that they be wired,mailed, or directly deposited with a specified institution. Further, theVRS preferably responds in a default language (e.g., English, or alanguage as determine by the plan level rules) particular to theparticipant, and/or the participant can be presented with a menuprompting for entry of the language in which the participant would liketo continue the session. Languages presently preferred for implementingin this system include English, Spanish, German, French, Italian,Portuguese, Dutch, Mandarin (Chinese), Japanese, Tagalog (Philippines),and Malay (Malaysia); other languages can be used or implemented as aparticular plan or administrator requires. Similarly, a web site canallow the participant to continue their session on web pages with theirparticularly preferred language.

As mentioned in various places above, the present system can generateany number of reports in respect of the transactions, options granted,and the like. It is preferred that, via the plan level rules, allreports for a particular client are generated in a designated language.It is particularly preferred that reports, in addition to thosementioned already, also include (i) monthly, quarterly, and/or annualstatement reporting on the participants option holdings and activity,(ii) confirmations of the exercise, and (iii) confirmation of theparticipant's PIN and any other passwords required to access the system.

In yet another embedment, the invention contemplates the real timeexecution of option exercise, as described in U.S. Pat. No. 4,674,044,entitled “Automated Securities Trading System” (the disclosure of whichis incorporated herein by reference). In that system, trades to beexecuted are collected at the end of the day and processed for a singleblock trade the following trading day. In the present invention, such asystem could have undesirable consequences because one or more suchlarge trades could provide sufficient market pressure to change theprice of the underlying security, most likely decreasing its price. Whenoptions are executed by insiders, the required disclosure of suchexercises, coupled with changes in the underlying security price, couldhave number of detriments. Accordingly, it is desirable to allow theplan participant to exercise her options in real time under the presentsystem. With reference to FIG. 6, assuming, for example, that theparticipant calls in by telephone, the participant (“user” in theFigure) starts 601 by calling a predefined telephone number andnavigates through various menu options using the touch tone phone keysusing known technology (the Voice Response System, “VRS”, mentionedabove). The user enters her account number 603 which is verified 605 bythe system. The user then enters her PIN at 607. The system verifies theuser's PIN 609 and decides whether real time trading is an electionwithin the plan 611 by reference to the plan level rules. If real timeprocessing is permitted, the user enters her desired order for theoptions to be exercised 613 (e.g., number of options to be exercised andtype of exercise for all or groups thereof) and the order is processed615. If real time trading is not permitted, the system branches 617 toprocess the order in a batch mode (e.g., the order will pend on thesystem until it can be processed in the normal course of trading).Continuing with the processing, the order is executed 619 in real timesuch as in the aforementioned U.S. Pat. No. 4,674,044. Afterwards, thetrade is confirmed 621 and the relevant databases are updated 623 toreflect the option exercise, after which this portion of the processterminates 625.

In still another embodiment, the present invention contemplatessimulations of the tax consequences of an option exercise, especially incombination with the present invention. Income to a plan participantfrom the exercise of options is likely taxable at the federal, state,and even local levels. To facilitate the participant's decision on howmany options should be exercise, and how various options should beexercised (e.g., cashless, exchange, etc.), the invention provides asimulation of the tax consequences of a particular manner of exercisingthe options. The simulation can be performed at a workstation at whichbroker can view/run the simulation and communicate with the participant,or, more preferably, the participant can access the simulation viatelephone and use of a menuing system or via modem (e.g., a page on theweb portion of the internet, or on a bulletin board by direct modemconnection). By performing one or more simulations with differentparameters, the participant can better decide how the options should beexercised. In an embodiment of such a simulation, the participant firstspecifies the number of options to be exercised. The Net Shares of stockrequired for the exercise of the options is determined by:

(Number of Options)−(Required Shares for Stock Swap)−(ShareWithholding)−(Shares Sold)=Net Shares of Stock

The total taxes are assigned variable: Total Taxes=A

Gross SAR Proceeds=(number of options)×(Stock Price−Grant Price)=B

The fees/commissions due to the plan administrator and the SEC can becalculated as follows:

Fees/Commissions and Residual Proceeds Step 1 A − B = C If C > 0 Then[(Stock Sale Proceeds − Option Reimbursement) − C] = Not Gain If C < 0Then Negative (C) = Residual SAR Proceeds Step 2 Commissions CalculationNet Gain/Stock Prices × (Plan Commission Schedule) = X if X ≧ 0.005 thenround up to the next penny, if X < 0.005 then round down. SEC FeeCalculation (Net Gain/300) × .01 = SEC Fee if SEC Fee goes tothousandths place, then round up to next full hundredth. TransactionFees (set by the plan administrator) $3.85 for only CLF for all optiontypes except for “K” and “F”. Step 3 Total Fees and CommissionsCommissions + SEC Fee + Transaction Fees = Total Fees/Commissions

The FICA HI Taxes are calculated according to the following formula:

(Gross Gain)×(FICA Hi % from payroll file)=FICA Hi Taxes Due

FICA OAS Taxes are calculated as follows:

FICA OAS Taxes Step 1 (Gross Gain) × (FICA OAS % from payroll file) =Estimated FICA Tax Step 2 (Estimated FICA Tax) + (Participant YTD FICAOAS Amount) = Subtotal FICA Step 3 (the dollar amount shown can changedepending upon IRS regulations) If subtotal FICA ≦ $4054.80 EstimatedFICA Tax = FICA OAS Transaction TAX If subtotal FICA > $4058.80(Subtotal FICA) − (FICA Work 1) = FICA OAS Transaction Tax

The SUTA and Disability Taxes are calculated according to the followingformula:

(Gross Gain)×(SUTA or Disability Tax Rate from Payroll File)=SUTA TaxedDue or Disability Taxes Due

From the forgoing, the Total Taxes Due are calculated by the followingformula:

(Federal Taxes Due)+(Total State Taxes)+(Total Local Taxes)+(FICA HiTaxes Due)+(FICA OAS Transaction Taxes)+(SUTA Taxes Due)+(DisabilityTaxes Due)=Total Taxes Due

Thereafter, the Net Proceeds can be calculated according to thefollowing summantion:

[(Credit Banance+Check Amount)+Gross Proceeds+(Shares Required×StockPrice)+Gross SAR Proceeds]=[Reimbursement+(Total Tax−Taxes from ShareWithholding−Taxes Deferred)+Fees+Commissions+Residual SAR Proceeds]=NetProceeds

Depending upon the type of stock option granted to the participant,which type may have to be entered by the participant or broker, butpreferably is in the database, the simulation determines which taxcalculations are necessary according, for example, to the followingcriteria:

For NQO (non-qualified option): Calculate all tax calculations

For ISO (individual stock option)

1. If Qualified

2. Only for Wilmington and Pennsylvania (exceptions, e.g.)

3. If tax deferment is NOT selected

Then calculate State and Local

For DISO (deferred ISO):

Calculate State and Local regardless of whether tax deferment wasselected; and then

Calculate Federal if tax deferment is NOT selected.

For KEOUP/FSSAR:

Calculate all tax calculations

Federal Taxes are calculated Tax (Fed/Int'l)%×Gross Gain=Federal TaxesDue With the qualification that if Share Withholding is selected for taxpayment, the tax rate can not be greater than 28%. International taxescan be assumed to be the same as those for the U.S. as an estimation, orspecific tax calculations can be provided depending upon theparticipant's residence, where the proceeds are to be deposited, thelocation of the underlying security, and so forth.

State Taxes are calculated starting with: for states i=1 to n, Σ(R_(Si)×A_(Si)×GG_(i)) where R_(Si) is the tax rate for the ith state,A_(Si) is the state tax allocatble to the ith state, and GG_(i) is thegross gain, to arrive at Estimated State Taxes. Thereafter, thesimulation calculates the Resident State Comparison Rate for each workstate individually that has a reciprocity agreement with the residentstate (i.e., that state in which the participant has a legal residencefor tax purposes) as follows:

Resident State Comparison Rate=Work State allocation rate×resident statetax rate

The resident state comparison rate is then compared with the work statetax rate:

If comparison rate>work state tax rate, then offset rate=work staterate  (i)

If comparison rate<work state tax rate, then offset rate=comparisonrate  (ii)

The offset state taxes are calculated as equal to (Offset Rate×GrossGain).

This procedure is repeated for each work state that has a reciprocityagreement with the resident state. After all applicable offset statetaxes have been tabulated by each state, all offset state taxes aresummed to arrive at a Total Offset Tax Dollars. The final resident statetaxes are computed as the Estimated States Taxes for the Resident stateonly(i.e., the state in which the participant is a resident) minus theoffset rate. The total state taxes are finally computed as the sum ofthe final resident state taxes plus the Estimated Taxes for all of thework states.

The Local Taxes are calculated simply as localities i=1 to n, Σ(R_(Li)×A_(Li)×GG_(i)) where R_(Li) is the tax rate for the ithlocality, A_(Li) is the local tax allocatble to the ith locality, andGG_(i) is the gross gain, to arrive at Estimated Local Taxes.

A screen accessible to the broker or to the participant (e.g., on theweb portion of the internet) would preferably include the followingfields:

Total Exercise Costs—This shows the sum of the option reimbursementcost, Total Tax, and Fees/Commission.

Share/Cash Withholding—Designated by the tax payment field as anindicator of whether a stock or cash disbursement is requested. If sharewithholding, this field will reflect the number of shares withheld. Allother tax payments will reflect dollar amount of the option exercisewithout attached SAR taxes if applicable.

Residual SAR Proceeds—SAR proceeds not used to/from a exercise.

Pending Transaction—shows current pending transaction.

Other fields on the screen, along with some associated variables andcommands (it being understood that “screen” may run to multiple screens,and that multiple screens may be used to group common or relatedparameters and results) are shown, along with a preferred arrangement,in the following table:

Top of Screen Acct No. States client's account number Grant DateIndicated option grant date from database Grant Price Indicated grantprice (strike price) for this option. Status Date Date of an employeestatus change. (e.g., if all 0's, the status is active and unchanged).Status Indicates type of status change; e.g., voluntary or involuntarytermination, death, or retired. Available Options The number of optionsavailable to exercise. Available SAR Available attached SAR's Grant TypeOne letter code indicating the grant type Column One Exercise Type Theexercise method chosen; e.g., C = \CASH, CLP = CASHLESS PARTIAL, CLP =CASHLESS FULL, SS = STOCK FOR STOCK Reload CASHLESS FULL, SS = STOCKIndicate a “Y” or a “N” to reload the stock option No. of Options Thenumber of options to use in the transaction Disqualifying ISO Systematicdefault will be N unless a disqualifying exercise is placed. An ISO willbecome disqualified if shares are sold and or taxes are paid with sharewith- holding. The participant can also elect to disqualify an option.Number of SAR's Total SAR's to use. Tax (Fed/Int'l) The tax field willread the demographic screen fed tax field for domestic and aggregate taxrate for Int'l. Can adjust upward in increments of .1% up to 39.6% fordomestic. International taxes cannot be adjusted. The Federal tax willbe added to all other taxes provided in a demographic feed forcalculations. Stock Price Current stock price for model Tax PaymentMethod for paying taxes. C = Credit Balance/Check amount, S = ShareWithholding, D = Tax Deferral, and P = Stock Sale Credit Balance Amountof cash to be used for exercise from cash balance. Check Amt Total checkparticipant will use to complete a cash exercise (Use in the case ofwired funds as well.) Share Amount The amount of shares used from theaccount to complete a stock for stock exercise. Shares Attested Theamount of shares used from outside accounts to complete a stock forstock exercise. Use price as limit Indicate a “Y” or “N” if the stockprice entered in the model will be used as the limit price for a realtime trade. Indicate “N” for a market order. Column Two Exercise TypeThe type of exercise will be spelled out fully. C = Cash, CLP = CASHLESSPARTIAL, CLF = CASHLESS FULL, SS = STOCK FOR STOCK Net Shares The sharesthat will be received by the participant. The following is thecalculation: Options − Required Shares for Stock Swap − ShareWithholding − Shares Sold = Net Shares Net Proceeds Any cash that willbe received by the participant from a option exercise. The following isa calculation: [(Credit Balance + Check Amount) + Gross Proceeds +(Shares Required × Stock Price) + Gross SAR Proceeds] − [Reimbursement +(Total Tax − Taxes form Share Withholding − Taxes Deferred) + Fees +Commissions + Residual SAR Proceeds] = Net Proceeds SAR ProceedsInformation displayed whenever a SAR or a Unit Option is exercised withthe net proceeds generated from a SAR exercise or Unit surrender. Thefollowing is a calculation: (Stock Price − Grant Price) × # of SAR's −SAR taxes = SAR Proceeds Required Cash The minimum cash needed tocomplete a cash Amount exercise. Requires Shares Calculation of thetotal shares required to do a stock for SS for stock exercise. Thefollowing is a calculation: [(number of options × grant price)]/stockprice = required shares Stock Sale Total proceeds generated by a stocksale on a exercise Proceeds

The above-described arrangement is merely illustrative of the principlesof the present invention. Modifications and adaptations thereto will beapparent to those skilled in the art upon perusing this specification,and such are intended to be within the scope and spirit of the presentinvention.

What is claimed is:
 1. A data processing method for managing J clientstock option plans, wherein for each Jth client's plan there are Iparticipants in the plan, where J and I are positive whole numbers,comprising: storing the identity of each client; storing the identity ofeach participant for each said client; creating one or more accounts,each said account associated with a participant; storing information ineach said account regarding stock options held by said participant underthe stock option plan, said information comprising: the number ofoptions for shares of stock in each participant's stock option plan; thestrike price of each said stock option; and a date on which each saidstock option is vested, said date calculated at least in part by anaxiomatic rule system; monitoring the current market price for the stockunderlying each option; receiving from a participant an order to executea trade exercising a vested stock option in said participant's plan;executing said trade on said vested stock option when the market priceequals or exceeds the strike price of said vested stock option toreceive the shares underlying the option exercised.
 2. The method ofclaim 1, further comprising: providing at leas one system selected fromthe following: for (a) converting and disbursing currency received fromimplementing said option transaction into a different currency; (b)brokering the transaction in real time; and/or (c) simulating an optiontransaction and outputting the expected results from the transactionsprior to the actual implementation of the option transaction requested.3. The method of claim 1, further comprising: accumulating said ordersto execute a trade received from each said Ith participant of said Jclients prior to executing; and exercising said accumulated orders inblocks.
 4. The method of claim 1, wherein said trade is executed withoutfunds advanced by said participant.
 5. The method of claim 4, furthercomprising: receiving the stock from said execution of said option;retaining a portion of said received stock approximately equal in valueto the value of the option exercised.
 6. The method of claim 5, whereinsaid system is operated by an administrator, and further comprisingretaining an additional portion of said received stock as payment to theadministrator for brokering the trade.
 7. The method of claim 1, whereinthe participant advances funds in an amount for exercising said vestedoption.
 8. The method of claim 2, wherein said system is operated by anadministrator, and wherein the participant also advances funds tocompensate said administrator for brokering the trade.
 9. The method ofclaim 8, further comprising: selling the stock received as underlyingthe executed option and receiving funds therefor.
 10. The method ofclaim 9, wherein said system is operated by an administrator, andfurther comprising: retaining a portion of the funds received fromselling the underlying stock for said administrator as payment forbrokering said transaction.
 11. The method of claim 1, wherein the orderfrom the participant is received by telephonic communication.
 12. Themethod of claim 11, wherein the order is received by a voice responsesystem.
 13. The method of claim 9, further comprising: calculatingapplicable taxes on the exercise of the option and/or the selling of theunderlying stock received; deducting from the funds received at leastone applicable tax to arrive at a value of funds due the participant;and forwarding to said participant funds less at least one tax deducted.